IFRS for SME Flashcards
Provide the definition of a “small and medium-sized entity” in terms of IFRS for SMEs.
According to the scope of the statement, small and medium-sized entities are entities that do not:
- have public accountability
- Publish general purpose financial statements for external users (e.g. owners who are not involved in managing the business, existing and potential creditors, credit rating agencies, etc)
Define “public accountability” in terms of IFRS for SMEs.
An entity has public accountability and may not use the statement if:
- Its debt or equity instruments are traded in a public market, or it is in the process of issuing such instruments for trading in a public market; or
-It holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses, e.g. a bank, insurance entity, securities broker or dealer, mutual funds or investment banker.
Assume that the fair values of the properties are not readily available. Briefly discuss the initial and subsequent measurement of the properties
If the fair values cannot be determined, the investment properties should be accounted for as property, plant and equipment, which will be accounted for according to the cost model (i.e. cost less accumulated depreciation and impairment losses
Why is full compliance with International Financial Reporting Standards (IFRS) difficult for small and medium-sized entities (SMEs)?
- It is a costly exercise, because you require a significant investment in financial reporting systems, as well as in skilled human resources;
- The users of financial statements of SMEs often have less interest in some information in general purpose financial statements than users of financial statements of entities whose securities are listed for public trading, or that otherwise have public accountability.
Briefly discuss the treatment of the borrowing costs incurred on the office building in terms of IFRS for SMEs.
The borrowing costs should not be capitalised to the cost of the asset. The borrowing costs should be written off as an expense in profit or loss.
Assume that Real Home (Pty) Limited is not publicly accountable. Briefly discuss the initial and subsequent measurement of the land and office building in terms of IFRS for SMEs
The land and office building should initially be accounted for at cost.
Subsequently the land and office building may be accounted for in accordance with the cost model or the revaluation model
The Companies Act of 2008 distinguishes between non-profit companies and profit companies. List the four types of profit companies that are distinguished in the Companies Act of 2008
- A state-owned company
- A private company
- A personal liability company
- A public company
Define “small and medium sized entities” in accordance with IFRS for SMEs.
- Do not have public accountability
- Publish general purpose financial statements for external users
Briefly discuss the subsequent measurement of an investment in an associate in accordance with IFRS for SMEs.
- At cost less impairment, provided there is no published price for the investment;
- Using the equity method;
- At fair value with changes in fair value being recognised in profit or loss.
